Myopic and Farsighted Stability in Network Formation Games: An Experimental Study

Teteryatnikova, Mariya and Tremewan, James (2020) Myopic and Farsighted Stability in Network Formation Games: An Experimental Study. Economic Theory, 69. pp. 987-1021. ISSN 0938-2259

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We test the performance of myopic and farsighted stability concepts in a network formation experiment with a stream of payoffs and relatively unstructured link formation process. A subtle treatment variation demonstrates clearly the power of myopic stability concepts in precisely identifying the set of the most stable networks. However, we also find support for the predictions of farsighted concepts of stability, especially those that assume players' pessimism about the eventual outcome of a deviation. This is the first study to demonstrate that there exist environments where farsighted stability concepts identify empirically stable networks that are not identified by myopic concepts. Thus, myopic stability concepts are not necessarily sufficient to predict all stable outcomes in empirical applications.

Item Type: Article
Keywords: Network Formation, Myopic and farsighted stability, Cautious behaviour, Laboratory experiment
Classification Codes: JEL A14, C71, C92, D85
Divisions: Departments > Volkswirtschaft > Volkswirtschaftspolitik u Industrieökon.
Version of the Document: Published
Depositing User: Gertraud Novotny
Date Deposited: 18 Jun 2019 15:16
Last Modified: 07 Sep 2020 12:32
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